LendingClub.
I confess that I don’t understand the LendingClub scandal. LendingClub sold $22 million worth of "near-prime loans" to one investor ( Jefferies ) "in contravention of the investor’s express instructions as to a non-credit and non-pricing element"; it noticed the problem "with the discovery of a change in the application dates for $3.0 million of the loans." So: What was the "non-credit and non-pricing element"? Were the loans all incorrectly dated? (It doesn’t seem like it.) Or were Jefferies’s instructions not about the application date but about something else? "The discrepancy was fairly minor," apparently , but what was it?
LendingClub fixed the problem, not with an apology and a promise to do better next time, but by buying the loans back at par. Is it not a little weird that Jefferies would sell ? Obviously Jefferies had a reason for only wanting loans that met its requirements, and not other loans, but it is not at all clear to me what that reason was. (Perhaps it had to do with securitization ?)
LendingClub "subsequently resold them at par to another investor," I guess confirming its view that whatever flaws there were in the loans didn’t affect value. Did the other investor know that Jefferies had rejected them? Would you be sad if you bought loans at par that Jefferies had bought and then sold back in disgust? Or would you be, like, "hmm, Jefferies sure has weird idiosyncratic standards for its near-prime loans."
It is just a strange sequence of events. Obviously it is bad — you shouldn’t change the application dates on loans, and you shouldn’t sell investors loans that don’t meet their requirements — but it is still, to me, a pretty complete mystery what actually happened .
Anyway Chief Executive Officer Renaud Laplanche, the […]
